The IPA and Wisconsin’s 1969 Patent Policy, 4

One might see how, if university administrators believe that they have become, for invention purposes, the federal sponsor of the research, that they could also come to believe later that the Bayh-Dole Act vested ownership of inventions with the university as if the university were the sponsor of research and the federal funding agreement redirected any federal interest in inventions to the university. If the federal government asserted ownership of inventions through funding agreements (and regulations that form those funding agreements), then when the invention portion of the funding agreement is transferred to the university, so must also the ownership claim. The university can assert equitable title in inventions it never funded, simply because the government had funded them and transferred control to the university.

At least, that’s one way of reading the IPA program (and, later, Bayh-Dole). Things start with the Kennedy patent policy “presumption of title” with the government as a basis for federal contracting. Federal contracts are created by a combination of laws, regulations, and written agreements. The university then gets to stand in for the federal government for anything concerning inventions. Thus, the university gets the benefit of the federal “presumption” as a matter of assignment of the invention portion of the federal contract. When a university “elects to retain title” (in this manner of thinking), the university is “technically” “electing to accept being nominated by the federal agency to substitute for the federal government in the federal government’s claims to inventions made with federal support.” Under the IPA program, this thinking might have almost worked. Under Bayh-Dole, however, it’s impossible (though it is still done, of course) because Bayh-Dole displaces executive branch patent policy with a Congressionally mandated patent policy that does not include any requirement in federal funding agreement that the federal government has a claim to inventions made with federal support unless a contractor intervenes. Not there. Darn.

It’s all wickedly clever thinking, at least if one intends to co-opt inventor rights.

This conflation of university interest and compliance interest exploits a further characteristic of federal funding agreements with universities. These agreements are for the most part subvention awards, “grants-in-aid” rather than procurement contracts. There are no “deliverables” in subvention funding but for the work that’s proposed getting done, and getting done in a manner that benefits the public. The scope of the work is what is proposed. The deliverables are destined for the public–through publication, instruction, graduation, and assistance. Patents might play a role, but the purpose of federal funding was not to provide a subsidy for speculative exploitation of monopolies as a paywall between subvention research and public access. The apparatus in federal funding that introduces a concern for patents has to do with limiting monopoly speculation in research results in favor of public access.

There are three elements to these limitations, repeated all the way through Bayh-Dole: first, that the government gets a license–so the government cannot get sued for infringement or compensation by an owner of a patent on an invention made in subvention research–a posi–but “subvention invention” rather than merely “subject invention.” This distinction creates the difference between a private market and the federal market for the invention. Put another way, the federal use of any invention made in subvention research is always public domain. The government in asserting this right to be free of infringement claims takes nothing away from the posi owner; rather, this freedom is part of the basic bargain under which the government decides not to require inventions as deliverables in subvention funding.

Second, the government imposes restrictions on the use of the patent system with regard to inventions made with subvention support. These inventions are to be made broadly available, and earlier than one might expect from inventions made in other contexts–even typical commercial contexts. Thus, there’s an interest in private capital becoming available (“call forth risk capital”) to speed development of any invention at a pace that does not wait for savings to accumulate or to pick the perfect time to introduce a new product for maximum gain (such as when need becomes greatest, or when wealthy folk are ready to buy, long after poorer folk would have benefited). These restrictions take the form of a default for non-exclusive licensing and a default that such licensing be royalty-free or “reasonable”–that is, not based on monopoly rates, but on something less than what the patent monopoly might produce.

And for exclusive licensing, these restrictions limit the term of the exclusive license, so that there will be competition for producing products based on the subvention invention within the term of the patent. These restrictions form the public covenant that follows inventions made with federal support. In Bayh-Dole, which was made part of federal patent law–perhaps the strangest aspect of the law and certainly an innovation in executive branch patent policy–expresses the public covenant as both a restriction on the property rights of a patent on a subject invention and as a set of contract provisions that limit, if the federal agency chooses to enforce them, what posi owners can do with their posi. The public covenant is directed at the posi owner’s behavior in the private market for the invention and reflects the idea that whatever the patent system’s strengths and weaknesses might be in the general case, with regard to subvention research, where the government intervenes to bolster funding and give preference to some private efforts over others, exploitation of the full patent system is not appropriate.

For example, it is not appropriate for a posi owner to prevent all use of a subvention invention (through indifference, or receiving payments to prevent all use in favor of a company’s business position). We can rattle through the other issues–pricing at monopoly rates, preventing others from doing research and enjoying the benefits of their discoveries, stifling competition, placing unreasonable terms on access, delaying availability. The public covenant adds both diligence (a kind of working requirement not in U.S. patent law otherwise) and restriction (so that some legal forms of patent exploitation–limited only by antitrust law–are excluded in favor of requirements arising from subvention funding). To argue against these restrictions and diligence, as advocates of Bayh-Dole have been doing for years and getting the law changed to reflect their views, is in essence to reject the argument that subvention funding should not create a subsidy for speculation in the value of patents taken out on subvention inventions, that these posi must have a more restricted use, in favor of the public and not the patent owner. As 2 CFR 200.316 has it, the grantee must act as a “trustee” for public benefit, not as a mere “owner” pursuing a private interest.

We end up, then, with the argument against the public covenant that reduces to “universities may do anything with a patent that the patent system allows, because all that they do, they do for a public mission, and if they earn money from the value of a patent, that money goes to a public cause (after paying all those involved in producing that money–so, given typical royalty rates and royalty-sharing schedules, perhaps the public share of the value of the income retained for a university’s use after costs is perhaps 2% of the total value of each posi. The industry and patent broker system gets 98%. The university holds 2% for its own use. The public gets virtually nothing–not less than monopoly prices, not a greater freedom of access and use, not the donation of the balance after costs to public needs rather than institutional needs.

This argument–what’s good for the university financially is good for the public–is pernicious and difficult to cut through with sound-bite style teeth. Arrogant, selfish, corrupt, faux, wrong–these end up being, in their way, badges of virtue that show the degree to which university administrators so value the potential for public benefit from research inventions that they have to, at times, bend the awkward red tape of government bureaucracies in order to deliver results. It’s just that there are virtually no results. The results are kept secret. We see selective “success stories” attributed to institutional bureaucratic ownership of posi, but we see no connection that shows that institutional ownership advanced public access to the invention and that whatever came about did so because of institutional ownership and not in spite of that ownership.

Further, we see nothing about the status of all the rest of subvention inventions claimed by institutions–and it would appear that over 80% of these are never licensed (and never released for public use), and of those that are licensed, 1 in 40 might become a commercial product. Even rarer is the commercial product that meets the standard of “use such that benefits are available to the public on reasonable terms.” We see, further, no account of the effects of this combination of monopoly licensing and the withholding so many research discoveries from public access. These effects are not observed, not reported. It’s a “don’t look, don’t tell” kind of thing.

The third class of restrictions we recognize as “march-in” rights, under which the federal government can compel a posi owner to license a posi to meet government requirements for the public interest in the private marketplace. In the Kennedy patent policy, such march-in could take place if the federal government adopted regulations that required public use of a subvention invention. In such a case, it did not matter what a contractor had done with its “principal rights” in an invention made with federal support (subvention or procurement–didn’t matter). The contractor would have to release the invention non-exclusively for public use because the invention’s use now was a subject of federal regulation.

You can see why. If the government makes a law that everyone must use some invention, and that invention is held as a monopoly, then the law basically creates a huge demand butted up against a private monopoly that itself was created through government action. It’s a nice system, if one has the monopoly, but it grates against the idea that the public should not allow such monopolies in the first place when the public has the opportunity to prevent those monopolies from forming by not giving up patent rights at the time of contracting, or any time after. Thus, march-in was conceived as a way for government to address private-market side patent behaviors to address such things as nonuse, lack of availability, breach of contract, government treaties, and government regulations. Some of these practices might be breaches of the public covenant, but others arise simply as a matter of government actions involving the private marketplace.

Consider, then, how Wisconsin’s 1969 patent policy is mealy-mouthed when it announces the inventor’s options when there’s federal funding. Here’s how the policy sets up the situation when there is no obligation to a sponsor:

But under the IPA, the university is not a “third party” that “is contractually entitled to control over the property rights in the invention.” The IPA requires the university to require assignment of an invention to the university if the university has chosen to file a patent application. In the case of an IPA grant, the dean and business office are determining the university’s rights, not the sponsor’s rights. But they can only do that if the Wisconsin patent policy has been changed so that the university asserts ownership over inventions made with federal support. The IPA requires the university to do so when the university has made the decision to file patent applications, but the IPA does not require the university to make such a decision. University policy does not allow the university to make that decision without the inventor’s approval. But the IPA gave administrators leverage to make it appear that the federal rules forced the change in university policy, resulting in “greater latitude” (according to Wisconsin policy) for inventors.

The Wisconsin IPA eliminates the “third party” for HEW-sponsored research and replaces that “third party” with the university itself. Thus, the policy creates an unmanageable institutional conflict of interest in which university administrators acting in the interest of the institution (i.e., in the interest of the programs they control within the institution, such as patenting and income from patenting) decide what inventions meet a contract deliverable with a third party–because that contract deliverable then becomes their contract deliverable. Such a thing shouldn’t happen, but under the IPA, that was the bargain the university administrators made to gain access to inventions in the research they hosted, which otherwise they disclaimed an interest in.

This change is reflected in the form of the “patent agreement” implemented by Wisconsin:

The foundation in the IPA for assignment is simply that the assignment is required by the IPA when the university has prepared a patent application. But here in the new Wisconsin patent agreement the premise of assignment is “employment . . . in connection with . . . work in performance of a grant . . . .” Employment is the stated “consideration.” This is all very strange if the agreement is for a promise to assign inventions to a sponsor of research. In that case, it is the receipt of funds for the inventor’s use that might constitute the consideration for the promise to assign inventions. So “employment” and “consideration” here are mealy-mouthed. Further, if employment is the consideration for assignment, then sharing royalties clearly has nothing to do with it. The Wisconsin policy makes it clear that this is the case:

That is, the royalties paid are not consideration for anything. They are “in keeping with” WARF’s “traditional policies.” That is, WARF here is described as complying with its own policies to pay inventors; it does not pay inventors in consideration for an assignment of patent rights.

But the Wisconsin patent agreement makes sense (in a convoluted way) if it is intended to work as an agreement to promise to assign inventions to the university (or to WARF). The insertions of “the University’s designee” into the patent agreement explain the use of employment as consideration:

The university itself is not even mentioned. The “designee” is put in a list of “third parties”–sponsors of research. Take out “the University’s designee” and the obligations to disclose and assign make sense–comply with the terms of the research award that benefits your research work. But inserting “the University’s designee” mixes the issue–now the prospective inventor is required to assign to the university (i.e., the designee–which could be the university or WARF or most anyone) to fulfill the terms of an extramural contract for research. It’s easy to see how this language slips from federal requirements to any sponsor requirements, and that the pathway for compliance with any sponsor requirements for inventions as deliverables must then first pass through the hands of university officials (or designees), and that this passage ends up as troll bridge requiring a license and payment.

Notice as well in the Wisconsin patent agreement that the scope of rights is drawn broadly:

The patent agreement is not directed at HEW funding but rather to “any extramural agency.” It is a general document that manages compliance with extramural awards. In this regard, it is not particularly noteworthy. The noteworthy part, however, has to do with the scope of reporting in relationship to the scope of the promise to assign. The scope for reporting is broad–any invention “arising out of work sponsored” or “in any way aided by the grant, contract, or award.” That scope is much broader than the interest claimed for “subject inventions” in the IPA, which focuses only on patentable inventions (inventions that are or may be patentable):

The scope is “any part of the work under a grant or award.” “Under” is narrower than “arising out of” or “in any way aided.” In fact, the university’s scope and the IPA scope are entirely different models. The IPA’s model is that of a specified contract deliverable, something set forth in writing. The invention either matches that deliverable, or was made “in the course” of creating that deliverable. One can look at the invention and at the written statement of the proposed research and determine whether the invention was made “under” the grant. But the university does not use this model at all. Instead, it looks at the grant as a stimulus–did the grant work “aid” in making the invention? did the invention “arise” out of the grant work? These are not questions regarding specified deliverables but rather have to do with “assistance” or “use of resources” or “the consequences of having access to grant funding.” These claims are much more general and, for employers, fall outside of what federal common law permits an employer to claim as a matter of equitable title.

The use of the employer’s resources to invent, or even being paid by an employer, does not create in the employer a right to own an employee’s invention. One has to look at the scope and course of employment to get to an argument for equitable title. Otherwise, an employer obtains a “shop right”–a freedom to use such inventions for the employer’s purposes without fear of a claim of infringement by the employee. But Wisconsin’s new 1969 patent policy sets up the disclosure requirement to be broad–any invention “arising out of” or “in any way aided.” And then the policy turns that scope into what may be required to be assigned–not just to any sponsor, but to the university’s own designee–which is not a sponsor at all. The university’s designee is just proxy for the university itself–and the university might designate itself, for all that.

However, the addition of “the University” in the list of assignees is noteworthy, as this is the effect of the IPA with HEW. The university, not HEW, gets to decide whether under the IPA assignment to the university is “required.” That is, the university gets to interpret the language of the IPA relative to its own interest against that of its inventors.

Other federal agencies followed the Kennedy patent policy according to their own contracting requirements. Some allowed contractor ownership. Others did not. The Wisconsin patent agreement here is more than just wrong, more than violating Wisconsin’s own policy–it’s taking ownership of stuff that the university has no right to take ownership of.